UNIT-II

ORGANIZATIONAL DESIGN

Organizational Design- Determinants- Components- Types – Basic Challenges of Design- Differentiation- Integration, Centralization, Decentralization, Standardization, Mutual adjustment- Mechanistic and Organic Structures- Technological and Environmental Impacts on Design- Importance of Design- Success and Failures in Design- Implications for ManagersINTRODUCTIONOrganization design is not simply about mapping out an organizational structure, but also about how the organization is aligned with all other aspects, functions, processes and strategies within the business. When looking at organization design, the context within which the business exists must be taken into consideration. The chapter begins by discussing what an organization actually is before looking at how organization designs have evolved over time. The chapter then considers various forms of design, factors that influence design, etc., The chapter concludes by investigating what role HRM plays within organization design

Technological advancement has brought about far-reaching changes in the methods of work and also in the organization design. Globalization of market, changing methods of production, economic instability etc.,over the factors which affect the organization designing. It is in this context, the present unit seeks to analyze this concept and to outline the principles and theories associated with it.

OverviewOrganizational Design is the science (and art) of creating an organizational structure optimized to support strategic, business or cultural goals. It examines strategies, culture, structure, processes and more to achieve goals. An optimal design can improve efficiencies, drive desired behavior, spark innovation and distribute responsibility. Large organizations continually test and change their structures to address current market conditions.

Organizational Design is becoming more important in Human Resource Management as companies are rethinking and reworking their role in the market, their position vis a vis competitors, and their long term strategy. A key strategy in aligning the workforce with business goals, Organizational Design seeks to maximize workforce effectiveness while minimizing or maintaining costs.

Reasons for Organizational DesignThe current business climate makes organizational design a critical business priority. Some of the common reasons for changes in an organization’s design are:

Changes in the marketplace Demands from customers Pressure to reduce costs

Pressure to increase productivity Regulatory changes New division or product line New business leadership A merger or acquisition

MEANING OF ORGANIZATIONAL DESIGNThe term ‘organizational design’ refers to how various parts of the organization and the

distinct elements are brought together to make it. It considers both, how these elements match together and ways in which they may be analyzed and improved. The design aspects broadly include how the organization is structured, the types and numbers of jobs, and the processes and procedures used to:

handle and pass information; make decisions; produce results; manage quality communicate information; plan, develop and manage resources; innovate and handle crises

PURPOSES OF THE ORGANIZATION DESIGN

Broadly an organization is designed to realize a number of objectives. These could be: to support the organization’s strategy. The structure should be designed in such a

way as to assure the realization of the organization’s goals and objectives; to arrange resources in the most efficient and effective way; to provide for the effective division of tasks and accountabilities among individuals

and groups; to ensure effective co-ordination of the organization’s activities and clarify the

decision-making processes; to enhance and elucidate the lines of communication up, down and across the

organization; to permit for the effective monitoring and review of the organization’s activities; to endow with mechanisms for coping with change in markets, products and the

internal and external environments; to aid the handling of crises and problems; to help to motivate, manage and give job satisfaction to individual members of the

organization; and to provide for management succession

PRINCIPLES OF GOOD ORGANIZATIONAL DESIGN

A good organization design should go along with the following principles: The various parts of the structure should be divided into specialist areas. These specialist

areas need to be interlinked. The number of levels in the structure, sometimes referred to as the scalar chain, should

be as few as possible. The span of control, i.e, the number of subordinates directly managed, will vary

according to the nature of the jobs and the organization, but it should not be so narrow that it results in a structure with too many levels, or too broad to allow effective management.

There should be what has been described as unity of command. For this the reporting positions and authority need to be clearly defined.

Every post in the structure should have a clear role and add value to the way the organization functions.

The extent to which the organization should be centralized or decentralized will need to be determined by reference to a number of factors. These include the nature and type of industry, geographical dispersion, history, environment, resources available etc.

The structure must be designed to take account of changes in the environment, which can include the economy, legislation, markets, technological developments, geography, cultural environment, and social environment.

THEORIES OF ORGANIZATION DESIGN

Basically, there are two theories of organization design : universalistic & contingency theories. The universalistic theory assumes that there is “one best way” to organize. It means the maximum organizational performance comes from the maximum level of a structural variable, for instance, specialization (Taylor, 1947). Classical management is an earlier organizational theory that argue that maximum organizational performance results from maximum formalization and specialization and it is therefore a universalistic type of theory. Similarly, neo human relations is also an earlier universalistic type of organizational theory, which claims that organizational performance is maximized by maximizing participation (Likert, 1961).

Contingency theory differs from all such universalistic theories in that it sees maximum performance as resulting from adopting, not the maximum, but rather the appropriate level of the structural variable that fits the contingency. Therefore, the optimal structural level is seldom the maximum, and which level is optimal is dependent upon the level of the contingency variable.

A contingency is a variable that moderates the effect of organizational characteristics on organizational performance. At the most abstract level, the contingency approach says that the effect of the variable on another depends upon some third variable. The third variable moderates

the relationship between two variables and can therefore be called a moderator of the relationship or a conditioning variable of the relationship (Galtung 1967). In the contingency theory of organizations, the relationship is between some characteristic of the organization and effectiveness. Thus the contingency factor determines which characteristic produces high levels of effectiveness of the organization (or some part of it, such as a department of individual member). As much of the contingency theory research has studied organizational structure this tradition is referred to as structural contingency theory. Structural contingency theory contains three core elements that together form its core archetype.

First, there is an association between contingency and the organizational structure.

Second, contingency determines the organizational structure, because an organization that changes its contingency then, in consequence, changes its structure.

Third, there is a fit of some level of the organizational structural variable to each level of the contingency, which leads to higher performance, whereas misfit leads to lower performance. This fit-performance relationship is the heart of the contingency theory paradigm. It provides the theoretical explanation of the first two points.

KEY FACTORS AFFECTING ORGANIZATION DESIGN

The selection of an appropriate design is reliant upon several factors. However the primary factors that often affect organization design are : size, environment, strategy, and technology. Table 1 identifies some indicators for each of the four primary factors.

Factors in Organization Design Decisions

Factors IndicatorsSize Large smallOrganization Life Cycle

Stages of Organizations Growth

Environment Degree of complexityDegree of Dynamism

Strategy & Goals Low costDifferentiationFocused

Technology Task Interdependence

I. Size and Organization Design

Size is a main contingency factor that affects several aspects of structure. The size contingency refers to the total number of employees who are to be organized.

Size as a key structural variable is subject to two schools of thought. The first approach, often called the “bigger is better” model, presupposes that the per unit cost of production decreases as the organization grows. In effect, bigger is said to be more efficient. The second approach i.e. “small is beautiful” revolves on the law of diminishing returns. This approach asserts that oversized organizations and subunits tend to be beleaguered by costly behavioral problems. Large and impersonal organizations are said to trigger apathy and alienation, with resulting problems such as turnover and absenteeism. Two strong promoters of this second approach are Peters and Waterman, the authors of the best-selling In Search of Excellence

Recent research hints that when designing their organizations, managers should stick to a middle ground between “bigger is better” and “small is beautiful” because both models have been oversold. In reality, a newer viewpoint says complexity, not size, is the central issue.

A meta-analysis of 31 studies (Gooding and Wagner III, 1985) conducted between 1931 and 1985 that related organizational size to performance found:

Larger organizations (in terms of assets) tended to be more productive (in terms of sales and profits).

There was “no positive relationship between organizational size and efficiency, suggesting the absence of net economy of scale effects.”

There was zero to slightly negative relationship between subunit size and productivity and efficiency.

A more recent study examined the relationship between organizational size and employee turnover over a period of 65 months. Turnover was unrelated to organizational size.

Striving for Small Units in Big Organizations: In summary, bigger is not essentially better and small is not essentially beautiful. Hard-and-fast numbers regarding precisely how big is too big or how small is too small are hard to obtain. The best that managers can do is check the productivity, quality, and efficiency of divisions, departments, and profit centers.

2. Organization life cycle

Organizations, like humans, tend to progress through stages known as a life cycle. Like humans, most organizations go through the following four stages: birth, youth, midlife, and maturity. Each stage has characteristics that have implications for the structure of the firm.

Birth: In the birth state, a firm is just beginning. An organization in the birth stage does not yet have a formal structure. In a young organization, there is not much delegation of authority. The founder usually “calls the shots.”

Youth: In this phase, the organization is trying to grow. The emphasis in this stage is on becoming larger. The company shifts its attention from the wishes of the founder to the wishes of the customer. The organization becomes more organic in structure during this phase. It is during this phase that the formal structure is designed, and some delegation of authority occurs.

Midlife: This phase occurs when the organization has achieved a high level of success. An organization in midlife is larger, with a more complex and increasingly formal structure. More levels appear in the chain of command, and the founder may have difficulty remaining in control. As the organization becomes older, it may also become more mechanistic in structure.

Maturity: Once a firm has reached the maturity phase, it tends to become less innovative, less interested in expanding, and more interested in maintaining itself in a stable, secure environment. The emphasis is on improving efficiency and profitability. However, in an attempt to improve efficiency and profitability, the firm often tends to become less innovative. Stale products result in sales declines and reduced profitability. Organizations in this stage are slowly dying. However, maturity is not an inevitable stage. Firms experiencing the decline of maturity may institute the changes necessary to revitalize.

Although an organization may proceed sequentially through all four stages, it does not have to. An organization may skip a phase, or it may cycle back to an earlier phase. An organization may even try to change its position in the life cycle by changing its design.

As the life‐cycle concept implies, a relationship exists between an organization's size and age. As organizations age, they tend to get larger; thus, the structural changes a firm experiences as it gets larger and the changes it experiences as it progresses through the life cycle are parallel. Therefore, the older the organization and the larger the organization, the greater its need for more structure, more specialization of tasks, and more rules. As a result, the older and larger the organization becomes, the greater the likelihood that it will move from an organic structure to a mechanistic structure.

3. Strategy

How an organization is going to position itself in the market in terms of its product is considered its strategy. A company may decide to be always the first on the market with the newest and best product (differentiation strategy), or it may decide that it will produce a product already on the market more efficiently and more cost effectively (cost‐leadership strategy). Each of these strategies requires a structure that helps the organization reach its objectives. In other words, the structure must fit the strategy.

Companies that want to be the first on the market with the newest and best product probably are organic, because organic structures permit organizations to respond quickly to changes. Companies that elect to produce the same products more efficiently and effectively will probably be mechanistic.

III. Strategy and Organization DesignOrganizational strategy refers to the way the organization positions itself in its setting in

relation to its stakeholders, given the organization’s resources, capabilities, and mission. Basically two types of strategies are popular at present: Generic and Competence- based strategies.Generic Strategies

These are in terms of cost focus and product focus. According to Michael Porter, companies need to differentiate and place themselves differently from their competitors in order to build and sustain a competitive advantage. Organizations have attempted to build competitive advantages in various ways, but three underlying strategies appear to be essential in doing so: low cost, differentiation, and focused. These strategies are shown in Figure 2.Low Cost

A low-cost strategy is based on an organization’s ability to provide a product or service at a lower cost than its rivals. The organization’s design is functional, with accountability and responsibility clearly assigned to various departments.Differentiation

A differentiation strategy is based on providing customers with something that is unique and makes the organization’s product or service distinctive from its competition. An organization that chooses a differentiation strategy typically uses a product organization design whereby each product has its own manufacturing, marketing, and research and development (R&D) departmentsFocused

A focused strategy is designed to help an organization target a specific niche within an industry, unlike both the low-cost and the differentiation strategies, which are designed to target industry-wide markets. An organization that chooses a focused strategy may utilize any of a variety of organization designs, ranging from functional to product to matrix to network, to satisfy their customers’ preferenceCompetency-Based Strategies

Although the list of generic strategies provides a quick general guide for many senior managers, it is apparent that a firm needs the skills and abilities to get the most out of the intended generic strategy. Eventually, the firm may develop specific administrative and technical competencies to achieve the purpose. As middle and lower-level managers bring about minor modifications and adjustments to solve specific problems and capitalize on specific opportunities, they and their firms may learn new skills. These skills may be recognized by senior management and give them the opportunity to adjust, modify, and build upon a generic strategy to develop a so-called competency strategy. In the process of building upon its capabilities, the firm may actually move generic strategies and/or combine elements of two generic strategies.

Strategic choice refers to the idea that an organization interacts with its environment instead of being totally determined by it. In other words, organizational leaders should take steps to

define and manipulate their environments, rather than let the organization’s fate be entirely determined by external influences.

The notion of strategic choice can be traced back to the work of Alfred Chandler in the early 1960s. Chandler’s proposal was that structure follows strategy. He observed that organizational structures should follow the growth gained popularity only in 1972, when British sociologist John Child rejected the environmental imperative approach to organizational structure and proposed strategic choice model based on behavioral rather than rational economic principles. According to the strategic choice model , an organization’s structure is determined largely by a dominant coalition of top-management strategists.

As Figure 3 illustrates, specific strategic choices or decisions reflect how the dominant coalition perceives environment constraints and the organization’s objectives. These strategic choices are tempered by the decision minor modifications and adjustments to solve specific problems and capitalize on specific opportunities, they and their firms may learn new skills. These skills may be recognized by senior management and give them the opportunity to adjust, modify, and build upon a generic strategy to develop a so-called competency strategy. In the process of building upon its capabilities, the firm may actually move generic strategies and/or combine elements of two generic strategies.In summary, strategy influences structure and structure influences strategy. Strategic choice theory and research teaches managers at least two practical lessons. First, the environment is just one of many co determinants of structure. Second, like any other administrative process, organization design is subject to the byplays of interpersonal power and politics.4. Environment

The environment is the world in which the organization operates, and includes conditions that influence the organization such as economic, social‐cultural, legal‐political, technological, and natural environment conditions. Environments are often described as either stable or dynamic.

In a stable environment, the customers' desires are well understood and probably will remain consistent for a relatively long time. Examples of organizations that face relatively stable environments include manufacturers of staple items such as detergent, cleaning supplies, and paper products.

In a dynamic environment, the customers' desires are continuously changing—the opposite of a stable environment. This condition is often thought of as turbulent. In addition, the technology that a company uses while in this environment may need to be continuously improved and updated. An example of an industry functioning in a dynamic environment is electronics. Technology changes create competitive pressures for all electronics industries, because as technology changes, so do the desires of consumers.

In general, organizations that operate in stable external environments find mechanistic structures to be advantageous. This system provides a level of efficiency that enhances the long‐term performances of organizations that enjoy relatively stable operating environments. In contrast, organizations that operate in volatile and frequently changing environments are more likely to

find that an organic structure provides the greatest benefits. This structure allows the organization to respond to environment change more proactively.

5. Technology: Advances in technology are the most frequent cause of change in organizations since they generally result in greater efficiency and lower costs for the firm. Technology is the way tasks are accomplished using tools, equipment, techniques, and human know‐how

OTHER FACTORS

HistoryThe organization’s present structure may have developed over a number of years, as functions

have been added, changed or deleted. Obviously, the older the organization, the more significant history is likely to be. It is also more likely to have determined the current structure if there have been relatively little pressures on the organization to adapt to changing circumstance, either because it has monopolistic power or because the industry in which it operates is relatively slow-moving.

Customers and MarketsThe organization structure is also affected by the type of market and customers it serves, and in a customer-responsive environment this should be one of the main determinants of structure. If the organization is providing services to a broad range of customers in a large number of locations, it may need to have many branch officers, as do Banks, the Post Office and so on.The advantages of a customer-based structure are as follows.

meeting customers’ requirements is more likely to lead to long-term success for the organization;

it gives a clear focus to the organization; and it enables an emphasis to be put on the requirements of different customers groups,

thereby improving overall service quality.The main disadvantages are as follows:

there is a need to keep a close eye on market requirements which could require a lot of research;

to be responsive to customer requirements the organization needs to be very adaptable so that it can respond quickly to change;

in many cases the provision of different services for different customer types may not allow for the most effective use of resources or for economies of scale;

it may not always be economical or profitable for the organization to provide some of the services required by customers, yet failure to do so will result in loss of goodwill; and

in some environment, the need to provide services outside normal working hours or around the clock will mean that shift working, stand-by and call-out arrangements will need to be introduced which will affect the way the organization is structured

Processes

The processes used within the organization also affect the structure. A production line process consists of a number of distinct tasks carried out by people specializing in those tasks at different stages of the process. The underlying principle behind this approach is that specialization means people can develop high skills and speed, resulting in high output at low cost. There are of course disadvantages to this approach, primarily in terms of maintaining the motivation and morale of production line operatives. The advantages of organization of the basis of process or technology are that:

it allows for task specialization which means that people can develop a high degree of skill:

the emphasis on the outputs from a particular process can result in high productivity; the structure is easy to understand and manage and there is likely to be little ambiguity in

the outputs to be achieved; a structure that is driven by the organization’s processes is likely to require less

supervisory input; and Processes that are particularly dirty, noisy or hazardous can be grouped together.

The main disadvantages are that: there is a risk that by concentrating on processes the organization could lose sight of the

inputs required; there is a greater need for the company’s various processes to be integrated to ensure that

they work towards the company’s overall objectives; and there is less focus on the customer.

People

People in the organization affect the structure in a number of ways. Structures do not just appear, they are the result of people’s views and beliefs and their approach to managing the organization. The structure is also be affected by the types of jobs and people within the organization. Structures with a large number of professionals are more likely to involve team working, and therefore to be relatively flat compared with an organization that has to accommodate a range of jobs from the production line operative to the chairman.

GeographyThe geographical spreading of an organization affects its structure mainly because of its need

to be near raw materials or customers,. Where there is a significant degree of geographical distribution, there is likely to be more need for careful co-ordination and control than with a single site location.

When there is a strong need to provide products or services within a particular geographical area, the organization may be divided into regions or areas, with each being a fully self-contained, miniature version of the parent organization.

In many cases, understanding the particular needs and requirements of the local area is of sufficiently fundamental importance for location to be the most significant factor in organization design.

The advantages of a geographically based structure are: Responsiveness to local needs; It makes firm able to provide a complete service at one location; A degree of autonomy can provide for more efficient decision-making and increase job

satisfaction; and The organization can recruit locally based staff; it can facilitate the training and

development of managers who can quickly gain varied experience in smaller branch offices before moving to larger jobs.

Products and ServicesThe structure may be determined by the particular products and services provided. Large and

diverse organizations have separate divisions because they are dealing with very different products and services. Similarly, the Post Office has separate organizations for the various services it provides such as mail delivery (Royal Mail), parcel delivery (Parcel force) and counter services (Post Office Counters Limited).The advantages of product specialization are that:

it provides a focus on a specific area and encourages the development of expertise in the provision of that product or service; and

it is likely to provide a service that is more responsive to customer requirements.The disadvantages are that:

too much focus on the product may overlook customers’ real needs; and it may not make the best use of the organization’s resources.

Six Key Elements in Organizational Design

Organizational design is engaged when managers develop or change an organization's structure. Organizational Design is a process that involves decisions about the following six key elements:

I. Work SpecializationDescribes the degree to which tasks in an organization are divided into separate jobs. The main idea of this organizational design is that an entire job is not done by one individual. It is broken down into steps, and a different person completes each step. Individual employees specialize in doing part of an activity rather than the entire activity.

II. DepartmentalizationIt is the basis by which jobs are grouped together. For instance every organization has its own specific way of classifying and grouping work activities.

There are five common forms of departmentalization:

1. Functional Departmentalization. As shown in the Figure 2-1, it groups jobs by functions performed. It can be used in all kinds of organizations; it depends on the goals each of them wants to achieve.

Figure 2-1Functional Departmentalization example

Different aspects on this type of departmentalization:

Positive Aspects Negative Aspects

o Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations

o Coordination within functional area

o In-depth specialization

o Poor communication across functional areas

o Limited view of organizational goals

2. Product Departmentalization. It groups jobs by product line. Each manager is responsible of an area within the organization depending of his/her specialization

Figure 2: Product Departmentalization exampleSource: Bombardier Annual Report

Different aspects on this type of departmentalization:

Positive Aspects Negative Aspects

o Allows specialization in particular products and services

o Managers can become experts in their industry

o Closer to customers

o Duplication of functionso Limited view of

organizational goals

3. Geographical Departmentalization. It groups jobs on the basis of territory or geography.

Figure 2-3: Geographical Departmentalization example

Different aspects on this type of departmentalization:

Positive Aspects Negative Aspects

o More effective and efficient handling of specific regional issues that arise

o Duplication of functionso Can feel isolated from

other organizational areas

o Serve needs of unique geographic markets better

4. Process Departmentalization. It groups on the basis of product or customer flow.

Figure 2-4: Process Departmentalization example

Different aspects on this type of departmentalization:

Positive Aspects Negative Aspects

o More efficient flow of work activities

o Can only be used with certain types of products

5. Customer Departmentalization. It groups jobs on the basis of common customers

Figure 2-5: Customer Departmentalization example

Different aspects on this type of departmentalization:

Positive Aspects Negative Aspects

o Customers' needs and problems can be met by specialists

o Duplication of functionso Limited view of

organizational goals

III. Chain of command It is defined as a continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who reports to whom. There are three important concepts attached to this theory:

Authority: Refers to the rights inherent in a managerial position to tell people what to do and to expect them to do it.

Responsibility: The obligation to perform any assigned duties. Unity of command: The management principle that each person should report to only

one manager.

IV. Span of ControlIt is important to a large degree because it determines the number of levels and managers an organization has. Also, determines the number of employees a manager can efficiently and effectively manage.

V. Centralization and Decentralization

More Centralization More Decentralization

Environment is stable Lower-level managers are

not as capable or experienced at making decisions as upper-level managers.

Lower-level managers do not want to have say in decisions

Decisions are significant. Organization is facing a

crisis or the risk of company failure.

Company is large. Effective implementation of

company strategies depends on managers retaining say over what happens.

Environment is complex, uncertain.

Lower-level managers are capable and experienced at making decisions.

Lower-level managers want a voice in decisions.

Decisions are relatively minor.

Corporate culture is open to allowing managers to have a say in what happens.

Company is geographically dispersed.

Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions

VI. Formalization

It refers to the degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures.

Technological And Environmental Impact On Organizational Design

Environment and Organizational Design

Organizations, as open systems, need to receive various inputs from the environment and to sell various outputs to their environment. Therefore, it is important to comprehend what the environment is and what elements are likely to be important.

The environment of an organization may be defined as general or specific. The general environment is the set of cultural, economic, legal-political, and societal conditions within the areas in which the organization operates. The specific environment constitutes its owners, suppliers, distributors, government agencies, and competitors with which an organization must interact to grow and survive. A firm, typically, much more concerned over the composition of its specific environment than of its general environment.

Environmental ComplexityEnvironmental complexity is an estimate of the magnitude of the problem and opportunities in the organization’s environment. This is identified by three main factors: the degree of richness, the degree of interdependence, and the degree of uncertainty stemming from both the general and the specific environment.a) Environmental Richness

For business, a richer environment means the economic conditions are improving, customers are spending more money, and suppliers (such as banks) are willing to invest in the future of the organization. A richer environment is also filled with more opportunities and dynamism, i.e., the capability for change. The organizational design must enable the company to be proverbial with these opportunities and capitalize on them. The opposite of richness is decline.b) Environmental Interdependence

The link between external interdependence and organizational design is often restrained and indirect. The organization may choose powerful outsiders by including them. For instance, many large corporations have financial representatives from banks and insurance companies on their boards of directors. The organization may also adjust its overall design strategy to absorb or safeguard the demands of a more powerful external element.c) Uncertainty and Volatility

Environmental uncertainty and unpredictable volatility can be particularly damaging to large bureaucracies. The obvious organizational design response to uncertainty and volatility is to go for a more organic form. However at the extremes, that ensures flexibility and is more adaptive to environment movement toward an adhocracy may be important.Using Alliances Where Environmental Factors Dominate

In high-tech areas, such as robotics, semiconductors, and advanced materials (ceramics and carbon fibers), a single company often lacks the entire knowledge essential to bring new products to the market. In this case, the organizational design must go beyond the boundaries of the organization and enter into inter-firm alliances, which mean announcing cooperative agreements or joint ventures between two independent firms. In Japan, alliance amount well established firms in many industries are quit common.

The network of relationship is called a Keiretsu. Keiretsu is a Japanese word which, translated literally, means headless combine. It is the name given to a form of corporate structure in which a number of organizations link together, usually by taking small stakes in each other and usually as a result of having a close business relationship, often as suppliers to each other. The structure, frequently likened to a spider’s web was very much admired in the 1990s.

Differentiation and Integration: The Lawrence and Lorsch Study

In their classic text, Organization and Environment, Harvard researchers Paul Lawrence and Jay Lorsch explained how two structural forces simultaneously disintegrate the organization and combine it together. They cautioned that an imbalance between these two forces could hold back organizational effectiveness.

Differentiation occurs through division of labor and technical specialization. Integration occurs when specialists cooperate to achieve a common goal. In the Lawrence and Lorsch model, integration can be achieved through various combinations of the following six mechanisms:

(1) a formal hierarchy;(2) standardized policies, rules, and procedures; (3) Departmentalization;(4) Committees and cross-functional teams; (5) Human relations training, and(6) Individuals and groups acting as liaisons between specialists.

When Lawrence and Lorsch studied successful and unsuccessful companies in three industries, they concluded that: As environment complexity increased, successful organizations exhibited higher degree of both differentiation and integration.

Dynamism

Dynamism relates to the stability or instability of the environment. Several authors have identified dynamism as one of the major environmental contingencies of organizations (Child 1975; Duncan 1972; Thompson 1967).

Dess and Beard (1984) emphasize that dynamism is not simply the rate of change, which itself could be constant, thereby rendering the environment predictable, but rather the degree of

unpredictability. As they state, “Dynamism should be restricted to change that is hard to predict and that heightens uncertainty for key organizational members”. This corroborates the significance of uncertainty as a strategic element of dynamism. It is presumed that when the task and environmental uncertainty contingency is low, the mechanical structure and when the task and environmental uncertainty contingency is high, an organic structure produces high effectiveness.

Mechanistic versus Organic Organizations A landmark organization design study was reported by a pair of British behavioral scientists, Tom Burns and G M Stalker. In the course of their research, they drew a very instructive distinction between what they called mechanistic and organic organizations. Mechanistic organizations are rigid bureaucracies with strict rules, narrowly defined tasks, and top-down communication. Organic organizations are flexible networks of multitalented individuals who perform a variety of tasks. Importantly as illustrated in Table 2, each of the mechanistic-organic characteristics is a matter of degree. Organizations tend to be relatively mechanistic or relatively organic.

CharacteristicMechanistic Organization

Organic Organization

Task definition and knowledge required

Narrow; technical Broad; general

Linkage between individual’s contribution and organization’s purpose

Vague or indirectClear or direct

Task flexibility Rigid; routine Flexible; variedSpecification of techniques, obligations, and rights

SpecificGeneral

Degree of hierarchical control High

Low (self-controlemphasized)

Primary communication pattern

Top-downLateral (betweenpeers)

Primary decision-making style

AuthoritarianDemocratic;participative

Emphasis on obedience and loyalty

High Low

Types of EnvironmentFigure 1 illustrates the basic classification of task environments. The four “pure” types of

task environments are: uniform-stable, varied-stable, uniform-unstable, and varied-unstable. The simplest organization design can be effective in a uniform-stable environment (box 1). Although the environment is relatively stable, these firms do face some uncertainties because of competitors’ actions, customers’ changing preferences, and potential substitutes for their products and servicesThe varied-stable environment (box 2) poses some risks for managers and employees, but the environment and the alternatives are fairly well understood. The environment is relatively stable, but employees may need considerable training and experience to understand it and make it work.The uniform-unstable environment (box 3) requires managers, employees, and organization designs to be flexible. Rapid response to sudden changes in market demand or technologies means that companies need organization designs that allow for considerable flexibility and speed in allocating resources to new product.

Low Uncertainty Few environmental factors exist. Factors are similar to each other Factors remain basically the

sameExample: Salt manufacturers, Printing firms

Moderate UncertaintyMany environment factors exist.Factors are not similar to each

other.Factors remain basically the same

Example : Registrars’ offices in universities Gasoline refining/ distribution firms

Moderately High Uncertainty Few Environment factors exist Factors are similar to each other Factors are continually changing

Example: Fast-food firms consumer products firms

High UncertaintyMany environmental factors exist.Factors are not similar to each other.Factors are not continually changing.Example: Telecommunications firms, Biotechnology firms.

Uniform varied

Degree of Complexity

Figure 1. Basic Types of Task Environments

The varied-unstable environment (box 4) represents the most challenging situation for an organization because the environment presents numerous uncertainties. This environment requires the most managerial and employee sophistication, insight, and problem-solving abilities.

Technology and Organization Design

Advances in technology are the most frequent cause of change in organizations since they generally result in greater efficiency and lower costs for the firm. Technology is the way tasks are accomplished using tools, equipment, techniques, and human know‐how.

In the early 1960s, Joan Woodward found that the right combination of structure and technology were critical to organizational success. She conducted a study of technology and structure in more than 100 English manufacturing firms, which she classified into three categories of core‐manufacturing technology:

Small‐batch production is used to manufacture a variety of custom, made‐to‐order goods. Each item is made somewhat differently to meet a customer's specifications. A print shop is an example of a business that uses small‐batch production.

Mass production is used to create a large number of uniform goods in an assembly‐line system. Workers are highly dependent on one another, as the product passes from stage to stage until completion. Equipment may be sophisticated, and workers often follow detailed instructions while performing simplified jobs. A company that bottles soda pop is an example of an organization that utilizes mass production.

Organizations using continuous‐process production create goods by continuously feeding raw materials, such as liquid, solids, and gases, through a highly automated system. Such systems are equipment intensive, but can often be operated by a relatively small labor force. Classic examples are automated chemical plants and oil refineries.

Woodward discovered that small‐batch and continuous processes had more flexible structures, and the best mass‐production operations were more rigid structures.

Once again, organizational design depends on the type of business. The small‐batch and continuous processes work well in organic structures and mass production operations work best in mechanistic structures.

Two important technological contingencies that influence the type of organizational structure are the variety and analyzability of work activities. Variety refers to the number of exceptions to standard procedure but can occur in the team or work unit. Analyzability refers to the extent that the transformation of input resources to outputs can be reduced to a series of standardized steps.

Some jobs are routine, meaning that employees perform the same tasks all of the time and rely on set rules (standard operating procedures) when exceptions do occur. Almost everything is predictable. These situations, such as automobile assembly lines, have high formalization and centralization as well as standardization of work processes. When employees perform tasks with high variety and low analyzability, they apply their skills to unique situations with little opportunity for repetition. Research project teams operate under these conditions. These

situations call for an organic structure, one with low formalization, highly decentralized decision-making authority, and coordination mainly through informal communication among team members.

High-variety and high-analyzability tasks have many exceptions to routines, but these exceptions can usually be resolved through standard procedures. Maintenance groups and engineering design teams experience these conditions. Work units that fall into this category should use an organic structure, but it is possible to have somewhat greater formalization and centralization due to the analyzability of problems.

Thompson’s view on the Impact of TechnologyThompson (1967) argues that task and technology are major contingency factors of

organizational structure. He offers a typology of types of technology and their respective organizational structures. Three different types of technologies are distinguished: mediating, long-linked, and intensive. These correspond to three types of task interdependence between organizational subunits: pooled, sequential, and reciprocal.

Mediating technology refers to the linking of customers, such as a bank linking lenders and borrowers, and involves pooled interdependence. Pooled independence means that two organizational subunits (e.g., branches of a bank) have not direct connection, so that their interdependence is indirect, residing in their both drawing resources from some central pool.

Long-linked technology refers to sequential interdependence where task A is the input to task B. Sequential interdependence means that the subunits have a direct connection, so that the output of one subunit is an input to the other subunit.

Intensive technologies use varying techniques according to feedback from the object worked upon .For example, a hospital using various diagnostic and treatment techniques according to the condition of the patient, and involve reciprocal interdependence. Reciprocal independence means that the subunits have a two-way connection, in which the output of each subunit is an input to the other subunit, so that they transact back and forth in an unpredictable manner.

The three types of interdependence (pooled, sequential, and reciprocal) are each fitted by varying degrees of mechanistic or organic structures. Thus task interdependence can be considered to be a contingency of organic structures.

Woodward’s view on the Impact of Technology

Joan Woodward proposed a technological imperative in 1965 after studying 100 small manufacturing firms in southern England. She found distinctly different structural patterns for effective and ineffective companies based on technologies of low, medium, or high complexity.

Effective organizations with either low or high-complexity technology tended to have an organic structure. Effective organizations based on a technology of medium complexity tended to have a mechanistic structure. Woodward concluded that technology was the overriding determinant of organizational structure.

Since Woodward’s landmark work, many studies of the relationship between technology and structure have been conducted. Unfortunately, disagreement and confusion have prevailed. A statistical analysis of those studies brings about the following conclusions.

The more the technology requires interdependence between individuals and/or groups, the greater the need for integration (coordination).

As technology moves from routine to non-routine, subunits adopt less formalized and [less] centralized structures

Importance of Organizational Design:

Good organizational design helps improve communication, increase productivity, and inspire innovation. It creates an environment where people can work effectively.

Organizational design will helps to improve the coordination among various functions and to share ideas among various department functions.

Organizational design provides clarity in the organizational roles. To be effective, the overall organization design must be aligned with the business strategy and the

market environment in which the business operates. Organizational design is important because it identifies who will make decisions, shape

outcomes, and lead the change process It must also have the right business controls, the right flexibility, the right incentives, the right

people, and the right resources. These designs consist of a systematic approach to encourage creativity and collaboration among

members When an organization design is working well, it creates alignment throughout the broader

organization, facilitates effective workflow, enhances partnership and synergy, and enables better individual performance.

Organization design and structure has become so crucial that it dictates how people function in any business, thus directly affecting the functioning of the company.

A good structure and design will lead to an improvement in communication, increase output and productivity of its employees and most importantly make all the shareholders happy

Good organizational design

Most productivity and performance issues can be attributed to poor organizational design. Poor organizational design often results in, among other things, confusion within roles, a lack of coordination among functions, and failure to share ideas. A company can have a clear mission, talented people, and great leaders, and still not perform well because of poor organizational design.

Failures of Organizational design

Sometimes redesign is necessary because of performance problems created by the gradual emergence of poor organizational fit. The following symptoms frequently indicate problems related to organizational design

Lack of coordination. Cross-unit projects don’t get finished or work units are unclear about their responsibilities and some feel isolated and out of step with the rest of the organization.

Excessive conflict. Relationships among internal groups are characterized by needless friction.

Unclear roles. Individuals or groups are uncertain about what is expected of them. Functions may overlap or work may fall “through the cracks” between units.

Misused resources. Resources don’t get to the people who need them. Specialized unit functions or individual skills may not be fully utilized

Poor work flow. Disruptions and cumbersome processes inhibit the effective flow of work throughout the process.

Reduced responsiveness. The organization can’t respond quickly to changes in the environment, market needs, etc.

Proliferation of extra–organizational units. The organization comes to rely excessively on task forces, committees, and special project groups to deal with every significant new challenge, indicating an inadequate design

Poor organizational design and structure results in a bewildering morass of contradictions: confusion within roles, a lack of co-ordination among functions, failure to share ideas, and slow decision-making bring managers unnecessary complexity, stress, and conflict. Often those at the top of an organization are oblivious to these problems or, worse, pass them off as or challenges to overcome or opportunities to develop

Your organizational structure is what maintains the hierarchy in your organization, facilitates communication and keeps your organization running smoothly. Effective leadership and strong organizational structure are more important to the success of a company than technology, according to the International Institute of Management. In order to address an ineffective organizational structure, you first need to learn to identify the signs of a failing company framework.

Breakdown in CommunicationIf departments are no longer efficiently sharing information and processing data as they should be, then that is a problem with organizational communication. One of the causes of a breakdown

in company communication is that departments have begun to act on their own. There are many reasons why this could happen including a lack of trust between departments, the feeling by one department that another department is incapable of performing its job or incompetent management in the departments. The departments bypass the organizational structure and communication begins to break down.

Quality Control IssuesOrganizational structure comes with a series of checks and balances that are designed to perform certain levels of quality control. The engineering department and the marketing department work together to create instruction manuals for products that the general public can use. Accounting works with sales to discuss client accounts and keep sales moving. When the organizational structure begins to deteriorate, these checks and balances will stop. The marketing group starts to create instruction manuals without extensive input from the marketing group and information gets left out. If quality control is becoming an issue, it may be because the organizational structure is breaking down.

Low MoraleWhen departments are not communicating and individuals within those departments are getting reprimanded, morale in the company will begin to suffer. Employees start to ignore the organizational structure because of fear of discipline, they do not trust their manager or they no longer feel included in the overall success or operation of the company. In some cases employees may have multiple managers due to a breakdown in the company hierarchy, and this will cause confusion, according to employment expert Joan Lloyd writing on the Job Dig website. An alienated workforce with low morale is a product of a failing organizational structure.

Customer ServiceAn ineffective corporate structure sometimes lacks the ability to monitor interactions with the customers. If the sales group is not required to report customer issues to the customer service group, then the customer service people will be unaware of the problem if it should occur again. In an ineffective organizational structure, there is no cohesive way of handling customer issues. When customers contact the company, they may get three different answers if they talk to three different people. This causes a problem with customer retention and ongoing revenue. If you notice that your company is having a difficult time holding on to clients, you will want to check your organizational structure for problems

Success of OD

Organizational design serves as the foundation on which all company operations are built, including such vital factors as the grouping of employees within different departments and the formal managerial hierarchies within a company. Savvy early stage organizational design choices can create a foundation for success, allowing an organization to develop a strong

company culture, grow in response to increasing demand and adapt to changes in the marketplace.

Company LeadershipOrganizational design influences the leadership structure of a company, setting forth reporting relationships and lines of authority reaching from the executive level to the front line. It is important to have a clear map of managerial responsibility and accountability to keep the company running smoothly. Without clear lines of authority, employees in different areas of the company can become misguided or confused, while others find themselves with an unnecessarily high level of supervision. The ideal leadership structure depends on the industry a company is in and the personalities of business owners.

Company CultureThe leadership structure put in place by organizational-design choices can have a direct and lasting effect on company culture. The grouping of employees in various departments and the managerial hierarchy influences the way employees interact with each other on the job. Organizational design can influence the degree to which front-line employees are allowed to solve complex problems on their own rather than involving a manager, for example. An organization designed to make extensive use of telecommuters will result in a company in which workplace relationships are often formed and strengthened solely through online interactions, as another example.

Future GrowthOrganizational design choices made in the early stages of a business can either help or hinder growth plans. Organizational designs built to easily accommodate new managers and employees at different levels of the organization can add new positions without making significant structural changes. A company using freelancing telecommuters, for example, can add large numbers of freelancers with a small increase in the number of managers. A company that locates all employees in a small office, on the other hand, must acquire new office space or expand their current office to take on new employees.

AdaptabilityOrganizational design choices can develop distinct competitive advantages. Savvy business owners continually monitor changes in their industries and markets, looking for opportunities to adapt and develop new competitive advantages. Companies with taller organizational structures and complicated bureaucracies can find it difficult to adapt to changing market conditions, such as a growing use of lean business models or outsourcing in the industry. Companies with less complex organizational structures can find it easier to shift employees around, rework managerial hierarchies and redesign job descriptions for existing employees, all of which can increase efficiency or productivity in response to outside pressures.

The Role of HR In Organizational Design

Organization design is a concept that consists of the business strategy, the business structures,

processes, systems and performance measures. Many of these aspects are dealt with under the

general headings of ‘business management’. However, for an organization to achieve its goals,

ambitions, targets, or simply to survive, it requires input in the form of HR functions and

processes.

Many organizations, particularly small and medium-sized enterprises (SMEs), do not have an

HRM department. However, the same input of HR functions and processes still have to be

implemented. So whatever the size, type or location of an organization, the organization designs

within any business requires support from a whole range of HR functions. For example, if an

organization chooses or finds itself controlled by bureaucracy, it will require specific and

carefully chosen communication methods to ensure that all relevant information is cascaded both

down and up through the layers of management. On the other hand, if the organization is a flat-

structured business, it will require communication of a more horizontal nature, coupled with a

strong notion of teamwork.

HR facets can be split into two separate and quite often distinct categories. Firstly, there are

strategies, functions and processes that are performed by HR and can be categorized as tangible.

For example, a reward policy could be drafted up whereby employees would know that if they

performed to a given standard, they would receive a pre-designated reward. In addition, there are

intangible aspects that HR has to take control of. For example, HR would implement its reward

strategy, coupled with job design, working hours and flexible working methods, which all relate

to the psychological aspect of the employee. These psychological aspects all affect an

employee’s attitude, which then directly affects the performance of the employee. To confirm,

employee reward is both a tangible and intangible function. It is tangible in that it is an official

policy with formal processes. In addition, it is intangible in that it affects the attitude and

motivation of employees working within the organization. Both tangible and intangible aspects

have strong influences on the successful workings of organization designs

To expand on this point, look at the following examples.

The HRM department convinces management to invest in an intranet system. All relevant

information, news and current events within the business are detailed on the intranet. In addition,

the organization invests a large sum of money in a new piece of IT software that allows

employees to upload and share ideas and information relevant to their job role. However, if

employees are feeling demotivated or are not engaged in their jobs, or do not feel committed to

the organization, these investments are a waste of money. Employees will not share their

knowledge – they will not even bother looking at the intranet, and they will often not even read

their emails. So whatever processes or systems the business has in place (tangible), employees

need to be motivated to a level where they will utilize properly (intangible) investments made by

the organization.

Another simple example would be if a company with a matrix structure had a very important

project with tight deadlines. Project management relies heavily on teamwork, communication,

knowledge-sharing and leadership (tangible processes). It can be argued that how and to what

extent these processes are utilized depends on the attitude of each employee (intangible). An

employee with a positive attitude is far more likely to communicate and work with other team

members than an employee with a negative attitude.